Paying more for TV? Join the crowd, experts say
Posted: 02/24/2013 at 7:15 am
By: Justin Leighty
That’s because the three companies offering pay TV, Comcast, DirecTV and Dish Network, all increased prices in the last month. Roughly nine in 10 U.S. TV-watching households pay for a television service, though all three companies that provide local service point out that customers are getting more these days.
Still, that strategy is only good for so long, according to Frank Germann, assistant professor of marketing at the University of Notre Dame’s Mendoza College of Business.
“We are all consumers. We are kind of funny creatures. It depends on how much the companies are going to continue to increase the prices,” he said.
While consumers are people of habits and resist change, “there’s a tipping point where consumers are going to switch,” Germann said.
People under introductory offers haven’t felt the pain yet, but everyone else has.
Comcast rates went up an average of 4.9 percent in January. DirecTV raised their prices by 4.5 percent, while Dish Network customers saw increases of between 7 and 20 percent. All three companies pointed to rising programming costs — what they pay the owners of the networks to be able to carry those networks — as a major reason for the recent price increase.
For the first half of 2012, Comcast’s programming expenses rose 6.7 percent, and the company expects the final 2012 tally to be in the high single digits, said Angelynne Amores, company spokeswoman for the greater Chicago area.
According to DirecTV’s announcement, “In 2013, the programming costs we pay to owners of television channels will increase by about 8.0%, but we have chosen to adjust the prices our customers pay by an average of only 4.5%.”
Dish Network also cited programming costs as a driving force behind the jump.
None of the three companies revealed whether the price increases has turned away customers, but all three are working to make the price jumps more palatable.
They’ve rolled out things like digital-video recorders, high-definition programming and on-demand TV shows and movies to consumers on the TV side.
All three offer the options for most customers to watch TV on computers or smartphones away from home.
The fact that all three services announced their price hikes around the same time probably helps make the increases more acceptable to consumers, Germann said.
“You’ve got to give the consumer credit. I think most of us do shop around after a price increase happens, but if we realize that, ‘If I switch I really don’t save much, it costs me money and time to switch, especially time,’ that would be a deterrent and keep me from switching,” the professor said.
GOING BEYOND TV SERVICE
TV is only part of the picture. With AT&T and Verizon Wireless rolling out digital television packages in large metro areas, cable and satellite companies are expanding their offerings to compete. Comcast had 19.4 million Internet subscribers at the end of 2012, not far behind their 22 million television customers. They also have nearly 10 million voice (i.e. telephone) subscribers and offer home alarm systems.
Dish Network bought Blockbuster to expand its programming reach, and last year they started offering satellite broadband. This year they plan to figure out what to do with billions of dollars worth of wireless spectrum, the company said in filings with the U.S. Securities Exchange Commission.
Comcast’s Amores said, “so much has changed in he last couple of years. There’s a lot of stuff we offer now. There’s so much that’s transpired in the industry.”
She doesn’t expect that to change, either. “We have to keep up with the pace of the people and the speed of the people, “ Amores said. “It’s a whole new ballgame.”
Bundling services is one approach TV companies like to take to convince consumers it’s convenient to stick with them.
Comcast can bundle its own services together, and Dish Network’s move into broadband offering and possibly wireless phone service allows the same.
DirecTV partners with Verizon Wireless and AT&T to bundle their television in telecommunication packages with those companies.
While bundled services can help mask price increases, Germann said, “in general I think these bundles tend to be beneficial as a cost benefit.”
He said, “from the company’s point of view it’s good for them if they can offer these services. I think increasingly what they’re going to face with the bundling is, unless they change their practices, people are going to wake up and get the antenna back into the house and just use Internet. Especially among younger people, I think that’s a trend that’s happening: Get rid of the TV, get rid of the telephone.”
ARE THERE OTHER OPTIONS?
In addition to digital over-the-air programming, anyone with a high-speed Internet connection — available around here from Comcast, Frontier and Dish Network — can find online offerings from networks and can also sign up for pay services like Hulu Plus and Netflix or via services like iTunes.
“Younger people, they’re fed up,” especially with attractive introductory prices that jump up after time. “They really are annoyed by these practices and they switch back to antenna and sign up for Internet TV,” Germann said.
In fact, some friends of his got $12 antennas. “All of a sudden they get HD for free, so they no longer pay for it.
“They got a good Internet connection for $40 and they got a Roku and subscribed to Amazon Prime for the year. They’re really content with what they have now,” he said.
There are still hurdles to that approach, like a lack of digital video recorders and difficulty in finding live sports, he said.
WHAT DOES THE FUTURE HOLD?
The industry is changing, with growing competition between the local providers, the telecom companies and the rise of Internet options and high-speed access.
One of the unattractive things about pay television, Germann said, is the large programming packages. “When you think about it, how many channels do we watch? Do we need 500 channels? Probably not. What I, as a consumer, would like to see” is a la carte programming, he said.
Whether that will become a viable option remains to be seen, but Germann’s “tipping point” may come in the next few years.
Last year, research firm The NPD Group said average monthly pay-TV bills will reach $123 in 2015 and $200 by 2020.
At this point, Amores said, “at about $3 a day, cable TV is about the price of a cup of coffee and significantly less expensive than taking a family to the movies or a sporting event.”
As prices rise and the industry changes, Germann said, “it’s definitely an interesting thing that’s going on. It will be interesting to see how this develops.”